African start-ups trim workforce over economic crisis

African start-ups trim workforce over economic crisis

African start-ups have begun to lay off employees as global economic crisis affects fund raising.

Globally, funding rounds have slowed, mass layoffs have hit the ecosystem, and tech firms are going bankrupt. According to startup layoff website, Layoffs.fyi, 76,677 staff members have so far been laid off from 586 startups in 2022.

With global inflation at an all-time high, and the ongoing Russia-Ukraine war influencing economic responses, funding to start-ups had shrunk and were being projected to shrink further.

Speaking to The PUNCH earlier, the Founder of Lendsqr and a trustee of Open Banking Nigeria, Adedeji Olowe, said, “The funding raises have started reducing from Q2. If we wait till July when the quarterly numbers come, we will see the dip. The dip is affecting everyone. We are going to witness a reduction in funding raises.”

According to him, high inflation rates has caused the US to increase its interest rate, making the US treasury bills more attractive than investing in start-ups. And with this, investors were shifting their funds to safe places, such as US treasury bills, in an uncertain market.

He added, “These are factors that are influencing the movement of money away. This cycle, that is, funding scarcity isn’t going to last forever. It is likely to get worse towards the end of the year, although by next year it will start shaping up again. Between now and when things start getting better, start-ups without solid bases are at risk.

“A lot of this is already happening in the US. Startups are struggling and laying off staff, and when this is happening, it mirrors what might happen here too. Because when start-ups here raise funds, they also raise overheads, and this is not sustainable without VC funds. Start-ups here are likely going to start laying off staff in a bid to cut costs.”

A recent report by TechCrunch, announced that Kuda had laid off about 23 its 450 staff base. In an email, the firm explained that its recent cut was part of a strategic step for sustainable growth.

It said, “Kuda is currently making some strategic changes to serve its customers better and continue to make financial services more accessible, affordable and rewarding to every African.”

It stated that the affected cuts were made across various departments in the company. Recently, Kuda raised raised $55m in a series B round that moved its valuation to $500m.

The firm is not alone with African startups like Swvl laying off 32 per cent of its 1,330 workforce; Wave, laying off about 300; 54gene, 95; and Vezeeta, 50.

When Wave laid off workers, its said it was doing it in hopes that it would make the startup more agile and less dependent on outside funding because global investors were cutting back.

In this year’s ‘Global Startup Ecosystem Index,’ the Chief Executive Officer, StartupBlink, Eli David, said, “Inflation, tech sector wage increases, company devaluations, and increasing interest rates will all challenge short-term economic growth and make it harder to raise capital.

“For founders, it could mean a return to beautiful origins; the self-funded bootstrapped path may become a necessity again.”

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